EBA published the final methodology, draft templates, template guidance, and list of participating banks for the 2021 EU-wide stress test, along with the key milestones of the exercise. The methodology and templates cover targeted changes compared to the postponed 2020 exercise, such as the recognition of foreign-exchange effects for certain P&L items and the treatment of moratoria and public guarantees in relation to the COVID-19 crisis. The stress test exercise will be launched at the end of January 2021 with the publication of the macroeconomic scenarios. The results of the stress test exercise are expected to be published by July 31, 2021.
The methodology document describes the common methodology that defines how banks should calculate the stress impact of the common scenarios and sets constraints for the bottom-up calculations. In addition to setting these requirements, it aims to provide banks with adequate guidance and support for performing the EU-wide stress test. This guidance does not cover the quality assurance process or possible supervisory measures that should be put in place following the outcome of the stress test. The note also lists components of banks’ projections for which banks are required to provide additional information in accompanying documents (for example, on the methods applied) as input to the quality assurance process. All templates used in the 2021 EU-wide stress test refer to the specific version of supervisory reporting requirements in place as of December 31, 2020. This means, for all templates, the use of FINREP and COREP standards as for EBA reporting framework 2.10 (applicable for reports until December 31, 2020). Annex I to the methodology note contains a list of the participating banks (about 49 banks) while Annex III presents a summary of the minimum information requirements for input into the quality assurance process.
The EU-wide stress test exercise is conducted on a sample of banks covering broadly 70% of the banking sector in the euro area, each non-euro area EU member state and Norway, as expressed in terms of total consolidated assets as of the end of 2019. To be included in the sample, banks must have a minimum of EUR 30 billion in assets. Competent authorities could, at their discretion, request to include additional institutions in their jurisdiction provided that they have a minimum of EUR 100 billion in assets. The exercise is run at the highest level of consolidation. The scope of consolidation is the perimeter of the banking group as defined by the Capital Requirements Regulation and Directive. The timeline for first submission of results to EBA is at the beginning of April 2021; the second submission to EBA will be in mid-May 2021; the third submission to EBA will be at the end of June 2021; and the final submission to EBA will be in mid-July 2021.
Similar the previous exercises, the 2021 EU-wide stress test is a bottom-up exercise with constraints, including a static balance sheet assumption. The exercise is primarily a diagnostic tool focused on the assessment of the impact of adverse shocks on the solvency of banks. Banks are required to estimate the evolution of a common set of risks (credit, market, counterparty, and operational risks) under an adverse scenario. In addition, banks are requested to project the impact of the scenarios on the main income sources. The draft version of the templates and template guidance can still be subject to minor technical adjustments before the final publication. The EBA EU-wide stress test is conducted in a bottom-up fashion, using consistent methodologies, scenarios, and key assumptions developed jointly with other authorities. The exercise is coordinated by EBA and conducted in cooperation with ECB, ESRB, EC, and the competent authorities from all relevant national jurisdictions. The aim of the stress test is to assess the resilience of EU banks to a common set of adverse economic developments to identify potential risks, inform supervisory decisions, and enhance market discipline.
Keywords: Europe, EU, Banking, Stress Testing, Reporting, Templates, Guidance, Methodology, Basel, ECB, EBA
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